Monday, November 2, 2020

Review of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto

This review was written by Eugene Kernes

Elaborate Description

The developing countries are not poor, they have a lot of wealth, they just cannot make their wealth part of the legal system denoted as property rights. As they do not have legal access to their assets, they cannot use these assets in a variety of ways such as mark them as collateral or transfer them easily. Capital is the ability to use asset for more than the physical purpose, and the poor do not have access to these uses. That is what makes the capitalism in the West work and fail everywhere is, that the West has given property legal status which allows the asset to be used in more ways than the physical properties.

Capital is defined by the potential use of an asset. This potential use can only be accessed via legal ways, while many in developing countries are in the extralegal situation. By providing property rights, usually starting with documenting the assets, the assets can be traded in more than just local circles. Documenting the assets is a way of representing its potential value, much like other forms of representations humans have created to express conceptual and non-physical properties. Documenting the assets make the invisible wealth, visible.

Operating in the extralegal has costs, which is why people who are given the opportunity to make their assets legal, do so gladly. Extralegality is seen as more of a norm, due to the high difficulty that many countries make it to become or stay legal. An integrated legal system facilitates accountability of the individual, reducing the need for trust developed locally. All extralegal arrangements have their enforcement mechanisms and close groups, while an integrated property system destroys the close groups it creates more networks.

Developing countries have entrepreneur ingenuity and gargantuan of wealth, what they do not have is ready access to the legal system. The problem becomes that the written law is not the peoples’ law. Governments fail to adapt the legal system for various groups. Rather than adapting to the extralegals, many governments have begun outlawing and prosecuting them. Many countries are in the same stage that the US was in history. Over time, the US integrated the extralegal code with the official one.

This book is a fantastic read about property rights. For countries to recognize and utilize their wealth, lawyers and leaders need to take charge of integrating the legal system. This is a difficult and turbulent process but is necessary to turn assets into capital.

Book Details

Edition ISBN:  9780465016150
Pages to read:   228
Publication:     2003
1st Edition:      2000
Format:            Paperback

Ratings out of 5:
Readability     5
Content           5
Overall           5